3 Mistakes Made in Scaling up New Ventures

You’ve launched a successful new product or new company. You have customers ordering what you’ve created. So, you’re on your way to building a thriving new venture, right? Not so fast. Most organizations feel that the job is done when they have successfully prototyped the first product or the initial service and are now selling to the first outlet or set of users. They’ve defined success as developing something customers want.

But reality is much different. The journey has just begun. Many fledgling companies and many ventures within established companies fail to capitalise on successful prototypes because they make one strategic error: they do not understand scale-up. And failing to scale swiftly can be the difference between life and death of a product or company in a fast-moving world. Our research suggests three classic and common mistakes in trying to transition from promising start-up to full scale venture. Here’s what they are and how to avoid them:

Realize that customers are not the same as users

Key to low cost airline Ryan Air’s growth was the recognition that airports, not passengers, were the real customer. Ryan Air was the first company to realize that municipal airports represented a very large market that could be systematically tapped. So instead of focusing only on passengers, Ryan Air went to smaller, less known airports typically owned by a municipality that was hungry for business. Bringing lots of users to the airports stimulated side benefits: more spending in cafes, more taxis and buses, more store revenues and more business for the locality. These side benefits were so great to these municipally owned airport “customers” that in many cases, Ryan Air was able to persuade small airports to pay Ryan Air to land!

Recognize that first users are not the same as scaling users

In the computer games market, the first users are generally not the scaling users, namely the regular players that pay good money for the game. Critical for the success of the game is to get the early users to play the game for free and suggest improvements, but to blog it widely as being good. Quake, launched by John Carmack was an ideal example of how acceptance by this “first user” transformed the later market. id software launched an early version of Quake in February 1996, directed specifically at pioneer users who were encouraged to trial the product for free. The early users were highly proficient at games and provided many ideas for the game’s evolution (“mods”), posting changes to the game on line, which encouraged others and started an upward spiral of sales, modifications and debugs. id software finally launched a pioneer user-redesigned Quake, with pioneer user “rave reviews” to an eager mass market of final customers users who paid for the product. Suggestions and even complaints by early users can be used to powerfully reshape the initial offering. In fact in our work with startups we encourage venture managers not to count early sales as revenues at all, but count them as market research inputs.

Anticipate that first products are not the same as scaling products

Early versions of products often feature different attributes than the mass markets users will want. Expect that your prototype product will need to evolve into a much simpler, but more robust, offering for the long-term mass market. It’s a typical “beta tester” approach, frequently used in software development, but it applies to all types of companies and new ventures.

European software maker Baan, for example, effectively scaled up their pioneering enterprise resource planning (ERP) software, by creating an initial free rough and ready offering for Shell to use internally. With its user feedback, Baan was able to improve its product dramatically — and then offer the developed product to less sophisticated users who just wanted it to work well.

Similarly the early models of electronic equipment can get away with clunky and quirky features that initial users will tolerate, but mass market users will reject, and demanding user-friendly, robust attributes.

It’s fun and important to celebrate your early success — but beware — make sure you have thought through whether your offering is ready for the big time and is poised for prime time customers, prime time users and prime time features

Bio: Charles Baden-Fuller is advisor and director to many high technology start-ups and has studied venture growth whilst being Centenary Professor of Strategy at Cass Business School, London. Ian MacMillan is the Dhirubhai Ambani Professor at The Wharton School, interested and active in innovation, technology and entrepreneurship

Charles Baden-Fuller is advisor and director to many high technology start-ups and has studied venture growth whilst being Centenary Professor of Strategy at Cass Business School, London. Ian MacMillan is the Dhirubhai Ambani Professor at The Wharton School, interested and active in innovation, technology and entrepreneurship.

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